AI chipmakers Nvidia (NVDA) and Advanced Micro Devices (AMD) led tech stocks on Thursday after the Federal Reserve cut interest rates by a whopping 50 basis points (bp). Nvidia’s stock rose more than 5%, while rival Advanced Micro Devices’ stock rose as much as 7% in afternoon trading before ending the day slightly lower.
The rise in stock prices shows investors are absorbing and believing Fed Chairman Jerome Powell’s message that the U.S. economy is “in good shape.” The tech-heavy Nasdaq (^IXIC) led the stock market’s upward trajectory. The index rose 2.5%, the S&P 500 Index (^GSPC) rose 1.7%, and the Dow Index (^DJI) rose 1.3%.
All the big tech stocks in the so-called Magnificent Seven rose. META stock rose 4%. Apple (AAPL) rose 3.7%. Amazon (AMZN), Google (GOOG), and Microsoft (MSFT) all rose nearly 2%. But the high-tech industry’s semiconductor subsector rose the most. The PHLX Semiconductor Sector Index (SOX) rose nearly 5%.
Nvidia’s rise is welcome news for investors who have watched the stock’s roller coaster ride in recent weeks. The company’s stock price fell after it reported second-quarter results at the end of August, which beat Wall Street expectations but missed full-year estimates for gross profit.
Stocks fell further on news that the Justice Department has sent a subpoena to NVIDIA as it ramps up its antitrust investigation into the company. But stocks rose again after CEO Jensen Huang successfully pitched investors on AI’s return on investment at a Goldman Sachs conference last week, and Oracle Chief Technology Officer Larry Ellison Celebrities including Elon Musk and others have reportedly “begged” for the addition of Nvidia AI chips.
And while NVIDIA stock may be down about 12% from three months ago, it’s up an impressive 172% since this time last year. The semiconductor superpower continues to benefit from the AI boom, proving it’s more than just hype.
Although Nvidia dominates the AI hardware market, AMD is also a big beneficiary of the wave of AI innovation. Although the stock has faced ups and downs throughout the past year, falling from its all-time high in March, the stock is up nearly 55% from last year.
AMD announced in late June that its second-quarter profits rose nearly 20% year over year. The company plans to announce its third-quarter financial results in late October.
A strong day for the semiconductor sector is a bright spot in the face of uncertainty as the US presidential election quickly approaches. Both presidential candidates’ hard-line stance on China will be bad news for U.S. semiconductor companies like Nvidia. The Biden administration has introduced strict export controls in 2022 that will prohibit Chinese companies from purchasing chips directly from NVIDIA and AMD.
story continues
Earlier this month, the United States introduced further restrictions on exports of semiconductors and quantum computing. Meanwhile, Nvidia is working on developing custom chips for Chinese customers that comply with current trade restrictions.
Nvidia headquarters in Santa Clara, California (Source via NVIDIA/Reuters) (Reuters/Reuters)
And despite the strong day, Scott Kronert, head of U.S. equity strategy at Citi, warned investors should take a barbell strategy as gains in tech stocks have slowed.
“Our focus from this barbell angle is we want to be those holders, but if you look at the rate of increase in earnings expectations for this period and going forward, it’s a step function over a year. ” he told Yahoo Finance on Thursday. “It’s starting to slow down.”
Laura Bratton is a reporter for Yahoo Finance.
Click here for the latest stock market news and in-depth analysis, including events that move stocks
Read the latest financial and business news from Yahoo Finance
